Comprehensive Accounting Transactions and Adjustments ACC201

QUESTION 1

StorAge retails one type of premium storage boxes which it sells for $48.4 (GST Inclusive) per unit. The following events took place during the month of October 2022:

October 3 StorAge purchased 70 boxes at $27.5 (GST Inclusive) per unit in cash.

October 15 StorAge purchased 160 boxes at $26.4 (GST Inclusive) per unit on credit.

October 21 StorAge sold all boxes on hand to BoxIsUs on credit.

October 27 BoxIsUs returned 20 boxes sold on 21 October which were not damaged and were returned to stock.

October 31 Stocktake revealed 17 boxes on hand.

Additional information:

1. StorAge had 90 boxes valued at $2,070 (GST exclusive) on hand on 1 October 2022. It uses the moving average cost flow assumption and the perpetual inventory method to account for its inventory movement.
2. The opening balance for the allowance for doubtful debts account was $350 credit on 1 October 2022. StorAge assumes 1% of all monthly net credit sales to be irrecoverable.

Required: Record October 2022 transactions including any adjustment(s) in the General Journal below. Round double-entries to a full dollar. GST needs to be accounted for. Narrations are not required.

QUESTION 2

DeepMine purchased mining equipment for $605,000 (GST Inclusive) on 30 June 2019. The mining equipment is depreciated at 25% a year using the reducing balance method of depreciation and is expected to have a residual value of $200,000.

On 30 June 2021, DeepMine paid $88,000 (GST Inclusive) to upgrade the equipment which significantly increased its residual value and paid an additional $1,650 (GST Inclusive) in regular maintenance expenses. The depreciation rate and depreciation method remained unchanged.

On 30 June 2022, due to a decreased demand for its services, DeepMine sold the mining equipment purchased on 30 June 2019 in cash at a loss of $10,000.

Required: Record depreciation expense entries on 30 June 2020, 30 June 2021, 30 June 2022, equipment upgrade and maintenance on 30 June 2021 and sale of equipment on 30 June 2022 in the General Journal below. GST needs to be accounted for. Narrations are not required.

QUESTION 3

Inker manufactures portable batteries for mobile devices and has a large presence globally. A senior accountant at Inker has approached you for advice on the following issues.

The manufacturing process of portable batteries has significantly improved over the last few years, however some manufacturing defects remain. Inker estimates that 97% of products sold would have no defects. If all minor defects were detected, it would cost the business 1% of total sales revenue and if all major defects were detected it would cost the business 2% of total sales revenue in warranty expenses. Total sales recorded for the year ended 30 June 2022 amounted to $15,779,940 (GST Inclusive). On 17 September 2022, one of Inkers largest customers claimed warranties of $70,000 and was reimbursed on the same day. Half of that amount was settled in cash and the remaining half in battery parts.

Required: Record the warranty expense for the year ended 30 June 2022 and the warranty claimed on 17 September 2022 in the General Journal below. GST needs to be accounted for. Narrations are not required.

In August 2022, a court case was filed against Inker. A small group of customers who purchased faulty portable batteries were suing Inker for compensation following battery explosions causing health-related injuries. The court has found Inker to be liable and estimated damages to be in a range from $100,000 to $500,000 pending further medical examination of affected customers.

Required: Using the definition and recognition criteria of a liability, explain whether the damages should be recognised as a liabilit

QUESTION 4

Terrific Trucks Pty Ltd, which manufactures and sells heavy haulage trucks, as well as medium and small delivery vehicles. On 1 January 2022 Reusable Ltd signed a contract to purchase a machine from Terrific Trucks. The agreed purchase price was $220,000 (GST inclusive) which was paid on the day of signing the contract. This amount includes a free service of the machine 24 months after the sale. The selling price of the machine, excluding the free services, is $200,000 (GST exclusive). The service fee for the service is usually $10,000 (GST exclusive).

The machine was delivered one month after the contract was signed.

Required: How should the transaction price of the sale of the machine and the service be allocated? Show all workings including the transaction price and allocated transaction price for all performance obligations.

Answer here:

Provide journal entries to record the receipt of cash, sale of machine and delivery of service. GST needs to be accounted for. Narrations are not required.

QUESTION 5

Study Hard Ltd has share capital of $2.7 million (1,200,000 shares) on 30 June 2021. On 1 September 2021, the directors authorised a public share issue on the basis of 200,000 shares. The shares were offered for subscription at $2 per share on application and $0.5 per share on allotment.

The offer closed on 1 October 2021 with applications received for 220,000 shares. Excess application monies were refunded on a pro rata basis. All shares were allotted to shareholders on the 4 October 2021. The allotment monies were received on 8 November 2021.

On 4 February 2022 an interim dividend of 5 cents per share was paid on all shares (paid out of the retained earnings).

On 30 June 2022, $100,000 was transferred from the general reserve to retained earnings.

Required: Record general journal entries for above transactions for the year ended 30 June 2022. GST needs to be accounted for. Narrations are not required.

QUESTION 6

PART A

The following information relates to FieldForce Ltd:

• FieldForce Ltd acquired a patent for $150,000 cash on 1 January 2022. Patent Law indicates the patent is legally valid for 15 years. FieldForce Ltd expects to hold the patent for 10 years.

• FieldForce Ltd has an internally generated customer list. During 2022, FieldForce Ltd was approached by another company that offered to pay $100,000 to acquire this list.

• FieldForce Ltd purchased a brand name for $1,000,000 (GST exclusive) cash on 1 January 2022. On the purchase date, FieldForce Ltd estimates that this asset will generate future economic benefits indefinitely. On 30 June 2022, the recoverable amount of the brand name is measured at $600,000.

REQUIRED:

Explain the accounting treatment for the patent, customer list, and brand name with respect to AASB138 Intangible Assets for both initial and subsequent measurement and recognition. Provide the general journal on the purchase of brand name on 1 January 2022.

ANSWER HERE:

PART B

FieldForce Ltd

Balance Sheet (extract)

As at 30/6/2022

30/6/21 30/6/22

$ $

Equipment 1,200,000 1,350,000

Acc. Depreciation (360,000) (405,000)

Land 480,000 540,000

Additional Information:

• A piece of equipment was sold for $45,000 cash. It had an original cost of $150,000 and accumulated depreciation of $75,000

• Land was revalued upwards by $10,000

REQUIRED:

Prepare a statement of cash flows for investing activities for the year ended 30 June 2022 in accordance with AASB 107 Cash Flow Statements for FieldForce Ltd.

ANSWER HERE:

QUESTION 7

A trial balance taken from GoFresh Pty Ltds accounting records on 30 September 2022, showed the following account balances:

GoFresh Pty Ltd

Trial Balance

as at 30 September 2022

At a meeting of directors on 1 October 2022, it was decided to issue additional shares to fund future operations. Accordingly, a prospectus was issued on 10 October 2022 offering 200,000 ordinary shares at $3 each to the public, payable $2.50 per share on application and the remainder in one call when required

By 30 November 2022, applications were received from the public for 224,000 shares. On 3 December 2022, the application money paid on 24,000 shares was refunded to unsuccessful applicants. The rest of the shares were allotted to the successful applicants.

On 31 January 2023, an interim dividend of 8c per share was paid out of retained earnings on all fully paid equivalent shares pro rata.

On 20 February 2023, the remaining call on the shares was made, and all cash was received on the call by 31st March 2023, except for the holders of 6,000 shares.

REQUIRED:

Prepare the general journal entries to record the information above. Narrations are not required.

QUESTION 8

Your Guitar Pty Ltd sells guitars and lessons on how to play guitar. On 1 March 2022, Your Guitar Pty Ltd signed an agreement with Music Studio to provide 8 guitar lessons and 5 guitars. The contract price amounted to $6,160 (GST Inclusive), on credit terms for the guitars and guitar lessons. This amount also includes one free service on the guitars to be performed six months after the delivery of the guitars to Music Studio.

The stand-alone price for the 8 guitar lessons is $2,860 (GST Inclusive).

The stand-alone price of the guitars is $5,720 (GST Inclusive). The six-month service fee on the guitars is $660 (GST Inclusive).

Music Studio paid the full amount on 26 March 2022 for the equipment and personal training lessons. The equipment was delivered on 28 March 2022.

By 31 March 2022, 3 guitar lessons had been held.

REQUIRED:

How should Your Guitar Ltd allocate the transaction price to the distinct performance obligations in this contract based on IFRS 15 / AASB 15 Revenue with Contracts from Customers? Provide relevant general journal entries up to 31 March 2022 inclusive.

ANSWER HERE:

The owners of the business have asked you, the accountant, to record all of the revenue from the contract in the statement of Financial Performance as at 31 March 2022. Discuss how recording all of the contract as revenue as at 31 March 2022 will influence the usefulness of financial information with reference to the fundamental qualitative characteristics of information prescribed by the Conceptual Framework for Financial Reporting.

ANSWER HERE: